February 21, 2000

Brazil Collides With I.M.F. Over a Plan to Aid the Poor

 

By LARRY ROHTER RIO DE JANEIRO, Feb. 20-- A new Brazilian government plan to spend more than $22 billion on social programs in the next decade has led to a squabble with the International Monetary Fund, which argues the money should be used to reduce Brazil's indebtedness rather than to fight poverty.

 

 The unusually public dispute has added to the unpopularity here of the I.M.F., which in the past has been accused of provoking recession in Brazil and trampling on the country's sovereignty. It has also given President Fernando Henrique Cardoso badly needed political help, forcing opposition parties to line up behind him and potentially strengthening his hand in continuing talks with an I.M.F. now more leery than ever of being seen as heartless.

 

Brazil and the I.M.F. reached agreement in November 1998 on an emergency three-year $41.5 billion rescue package, the terms of which  were modified early last year after Mr. Cardoso was forced to allow the national currency, the real, to be devalued by 40 percent. The accord calls for the Brazilian government to cut spending and raise taxes, and sets targets and timetables for actions like reducing public sector debt and selling state-owned companies.

 

But nationwide municipal elections are scheduled for October, with the presidential and legislative races to follow in 2002, and the government coalition is eager to offer voters something more than continued austerity. In addition, Mr. Cardoso promised in his 1998 campaign that if elected to a second term, he would take steps to lessen the country's chronically skewed income distribution and other social inequalities.

 

Though living conditions for the poor improved in the 1990's, economists calculate that at least half the work force in this nation of 165 million still earns the minimum wage of $77 a month or, in the case of millions working off the books, even less. According to government statistics, the poorest 10 percent of the population accounts for only 1 percent of national income, while the richest 10 percent receives nearly half.

 

As presented to Congress, the government's plan calls for at least $2.25 billion a year over the next 10 years to be funneled into a Fund to Combat and Eradicate Poverty for additional spending on things like education, health and infrastructure. Minister of Finance Pedro Malan maintains that money gained from privatization and new luxury taxes will enable Brazil to finance the program without deviating from the I.M.F. agreement.

 

In an interview with the Brazilian news magazine Veja last month, before the dispute erupted, the United States secretary of the treasury, Lawrence Summers, said that the government here "in the long term, needs to invest massively in the Brazilian people," citing education as a top priority. But in an interview last week with the Dow Jones news service, the I.M.F. representative in Brasília, Lorenzo Perez, said the government plan "established a precedent that could become dangerous."           

"Brazil already spends a significant amount of money on social programs," he said. "This money has to be used more effectively."

 

The Brazilian reaction was sharp and immediate, with the government and the opposition demonstrating a rare unity. Leaders of the leftist Workers Party called for Mr. Perez's expulsion, while Mr. Malan said  "the allocation of budgetary resources has never been a theme of discussion with the I.M.F. and is not within its area of competence."

 

A day later, Mr. Perez reversed course, saying that after further study of the plan, "I don't think its implementation would involve macroeconomic risks."

 

That appeared to be the end of the matter. But on Feb. 13, the departing managing director of the I.M.F., Michel Camdessus, left Brazilian officials seething anew over remarks he made at a United Nations trade conference in Bangkok, apparently unaware that Mr. Perez had retracted his original criticisms.

 

"We in the I.M.F. believe that what is important in the strategy of a country is not to get rid of the problems of the poor by doing some charity from time to time," he said. "What we see as more important is to make room in the budget of the government and of the states for increased social spending on a permanent basis."